HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Serco Limited (Respondents) v. Lawson (Appellant)

Botham (FC) (Appellant) v. Ministry of Defence (Respondents)

Crofts (Respondent) and others v. Veta Limited (Appellants) and others and one other action

[2006] UKHL 3

LORD HOFFMANN

My Lords,

The issue

1. The question common to these three appeals is the territorial scope of section 94(1) of the Employment Rights Act 1996, which gives employees the right not to be unfairly dismissed. Section 230(1) defines an "employee" as an individual "who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment." But the Act contains no geographic limitation. Read literally, it applies to any individual who works under a contract of employment anywhere in the world. It is true that section 244(1) says that the Act "extends" to England and Wales and Scotland ("Great Britain"). But that means only that it forms part of the law of Great Britain and does not form part of the law of any other territory (like Northern Ireland or the Channel Islands) for which Parliament could have legislated. It tells us nothing about the connection, if any, which an employee or his employment must have with Great Britain. Nevertheless, all parties to these appeals are agreed that some territorial limitations must be implied. It is inconceivable that Parliament was intending to confer rights upon employees working in foreign countries and having no connection with Great Britain. The argument has been over what those limitations should be. Putting the question in the traditional terms of the conflict of laws, what connection between Great Britain and the employment relationship is required to make section 94(1) the appropriate choice of law in deciding whether and in what circumstances an employee can complain that his dismissal was unfair? The answer to this question will also determine the question of jurisdiction, since the Employment Tribunal will have jurisdiction to decide upon the unfairness of the dismissal if (but only if) section 94(1) is the appropriate choice of law.

The facts

2. The facts of the three cases illustrate the situations in which the question of territorial scope may arise. In Lawson v Serco Ltd the employer is a substantial United Kingdom company which operates world-wide providing services to the public and private sector. It engaged Mr Lawson, a former RAF policeman, to work as a security supervisor on Ascension Island, where the company had a contract to service the RAF base. After six months on the island, Mr Lawson resigned, claiming that he had been constructively dismissed. Ascension is a 35 square mile volcanic island in the South Atlantic with no indigenous population. About 1100 people are stationed there, mostly working in defence or communications. It is a dependency of the British Overseas Territory of St Helena.

3. In Botham v Ministry of Defence the MOD first employed Mr Botham in 1988 as a "UK-Based Youth Worker" with the British Forces Germany Youth Service. Thereafter he worked under a succession of contracts and eventually as an established UK-Based Youth Worker at various MOD establishments in Germany. In accordance with the NATO Status of Forces Agreement of 1951 he was part of the "civil component" of the British Forces in Germany and treated as resident in the UK rather than Germany for various purposes including taxation. In September 2003 he was summarily dismissed on allegations of gross misconduct but claims that his dismissal was unfair.

4. In Crofts v Veta Ltd the employer is a wholly-owned subsidiary of Cathay Pacific Airways Ltd. Both are Hong Kong companies. Veta's only function appears to be to employ aircrew for Cathay aircraft. Cathay operated a "Permanent Basings Policy" by which some aircrew could be assigned a permanent "home base" outside Hong Kong. Mr Crofts was based at Heathrow, which enabled him to live in the United Kingdom. In July 2001 Mr Crofts was dismissed by Veta in circumstances which he claims were unfair.

5. Thus in Lawson and Botham, employer and employee both had close connections with Great Britain but all the services were performed abroad. In Crofts the employer was foreign but the employee was resident in Great Britain and although his services were peripatetic, they were based in Great Britain. In Lawson the Court of Appeal [2004] EWCA Civ 12; [2004] ICR 204 said section 94(1) did not apply to a case in which all the services were performed abroad and this ruling was followed by the Employment Appeal Tribunal and the Court of Appeal in Botham. In Crofts, however, the Court of Appeal (by a majority) [2005] EWCA Civ 599; [2005] ICR 1436 decided that Mr Crofts's basing in Great Britain was sufficient to enable the Employment Tribunal to treat section 94(1) as applicable.

Territoriality

6. The general principle of construction is, of course, that legislation is prima facie territorial. The United Kingdom rarely purports to legislate for the whole world. Some international crimes, like torture, are an exception. But usually such an exorbitant exercise of legislative power would be both ineffectual and contrary to the comity of nations. This is why all the parties are agreed that the scope of section 94(1) must have implied territorial limits. More difficult is to say exactly what they are. Where legislation regulates the conduct of an individual, it may be easy to construe it as limited to conduct within the area of applicability of the law, or sometimes by United Kingdom citizens anywhere: see Ex p Blain; In re Sawers (1879) 12 Ch D 522. But section 94(1) provides an employee with a special statutory remedy. Employment is a complex and sui generis relationship, contractual in origin but, once created, having elements of status and capable of having consecutive or simultaneous points of contact with different jurisdictions. So the question of territorial scope is not straightforward. In principle, however, the question is always one of the construction of section 94(1). As Lord Wilberforce said in Clark v Oceanic Contractors Inc [1983] 2 AC 130, 152, it

"requires an inquiry to be made as to the person with respect to whom Parliament is presumed, in the particular case, to be legislating. Who, it is to be asked, is within the legislative grasp, or intendment, of the statute under consideration?"

The repeal of section 196

7. The Act has not always been silent on the question of territorial scope. When the right not to be unfairly dismissed first made its appearance as section 22 of the Industrial Relations Act 1971, it was accompanied by a provision (section 27(2)) which said that section 22 did not apply "to any employment where under his contract of employment the employee ordinarily works outside Great Britain". (There was also a special exception for people who worked outside Great Britain on ships registered in the United Kingdom). The same form of words that had been used in the 1971 Act was used to limit the scope of a number of additional rights conferred upon employees by the Employment Protection Act 1975, such as the right to maternity leave and time off for trade union and public duties: see section 119(5) of the 1975 Act. Earlier employment legislation on matters such as redundancy payments and the right to be given a written statement of particulars of the employment agreement had contained somewhat different geographic limitations: see for example section 17(1) and (2) of the Redundancy Payments Act 1965 and section 12(1) of the Contracts of Employment Act 1972. When all this legislation was consolidated, first in the Employment Protection (Consolidation) Act 1978 and then in the 1996 Act, these various geographical provisions were put into a single section under the heading "Employment outside Great Britain". In the 1996 Act it was section 196 and the rule for unfair dismissal appeared in subsection (3).

8. The interpretation by the courts of what became section 196(3) had a somewhat chequered history and in Wilson v Maynard Shipbuilding Consultants AB [1978] ICR 376, 386 Megaw LJ said that the legislation (in "deceptively simple-looking words": see p. 384) had thrown up some problems which he did not think Parliament had foreseen. He invited Parliament, if it thought that the courts were interpreting the section in a way which frustrated its intention, to reconsider the matter and amend it. Parliament's imaginative response, twenty years later, was to leave the matter entirely to the judges. By section 32(3) of the Employment Relations Act 1999 it repealed the whole of section 196 and put nothing in its place. The only part to survive was the special provision for mariners, which was re-enacted in slightly different form as section 199(7) and (8). Otherwise, the courts were left to imply whatever geographical limitations seemed appropriate to the substantive right.

9. Your Lordships have heard various submissions about the inferences, if any, which can be drawn from the fact that Parliament repealed section 196 of the 1996 Act. In particular, it was submitted that Parliament must have intended to widen the territorial scope of the various provisions to which section 196 had applied. Counsel said that support for this argument could be found in the brief statement of the Minister of State, Department of Trade and Industry (Mr Ian McCartney) when recommending the repeal of section 196 to the House of Commons: see Hansard (HC Debates) 26 July 1999, cols 31-32. It is no criticism of Mr McCartney's moment at the despatch box to say that I have not found his remarks particularly helpful in dealing with problems which he is unlikely to have had in mind. Subject to one point to which I shall return later and on which it seems right to infer that the application of at least some parts of the 1996 Act was intended to be widened, I do not think that any inferences can be drawn from the repeal of section 196 except that Parliament was dissatisfied with the way in which the express provisions were working and preferred to leave the matter to implication. Whether this would result in a widening or narrowing of the scope of the various provisions to which section 196 had applied is a question upon which, in my opinion, the decision to repeal it throws no light. Parliament was content to accept the application of established principles of construction to the substantive rights conferred by the Act, whatever the consequences might be.

10. That does not mean, however, that the 1996 Act must be read as if the right not to be unfairly dismissed had been newly created without any guidance about its territorial application. There are in my opinion three ways in which the earlier history may be relevant.

11. First, the original exclusion of cases in which the employee ordinarily "works outside Great Britain" shows that when Parliament created the new remedy in 1971, it thought that the sole criterion delimiting its territorial scope should be the place where the employee worked. If he ordinarily worked in Great Britain, he should be entitled to protection. If not, then he should not. It attached no significance to such matters as the places where he was engaged, from which he was managed or his employer resided. The repeal of section 196 means that the courts are no longer rigidly confined to this single litmus test. Nevertheless, the importance which parliament attached to the place of work is a relevant historical fact which retains persuasive force.

12. Secondly, a certain amount of guidance, or at any rate ideas and discussion, may be found in the case law on the repealed section 196(3). Although the judges who decided those cases were applying a particular verbal formula, they were trying to interpret that formula in a way which seemed appropriate to delimit the substantive right. Thus their general views on the proper territorial scope of the right not to be unfairly dismissed remain of interest and I shall in due course refer to some of them.

13. Thirdly, the one point which I mentioned earlier, on which it is possible to identify a definite intention to widen the scope of section 94(1) by the repeal of 196, arises from the fact that part of the legitimate background is the Posting of Workers Directive (96/71/EC) which had been adopted by the European Parliament and Council on 16 December 1996. This required that employees who are posted by their employers to perform temporary work in other Member States should enjoy the protection of a "nucleus of mandatory rules for minimum protection" of employees under the law of the host state: see recitals (13) and (14). Article 3.1 lists the matters forming part of the mandatory nucleus. They include such matters as maximum work periods, minimum paid holidays, minimum rates of pay, health safety and hygiene at work, protective measures for women who are pregnant or have recently given birth. But they do not include the right not to be unfairly dismissed, except perhaps on grounds of pregnancy or childbirth.

14. It seems clear that insofar as section 196(3) prevented rights falling within the Directive from being enjoyed by employees who ordinarily worked outside Great Britain but were temporarily posted here, its repeal was intended to allow the courts to give effect to the Directive by interpreting the relevant substantive provisions as applicable to posted workers. To that extent, the repeal was intended to widen the territorial scope of those provisions. It does not logically follow that the same scope must be given to section 94(1) (except in the very limited circumstances of dismissal for pregnancy or childbirth). There is no reason why all the various rights included in the 1996 Act should have the same territorial scope. Indeed it may be said that by including only the "mandatory nucleus" in the Posted Workers Directive, the European Union has recognised that other rights might legitimately be given a different territorial application. But uniformity of application would certainly be desirable in the interests of simplicity.